Scottish 'no' vote: what next for the energy sector?

North Sea oil and renewable energy were key battlegrounds in the referendum.
We round up reaction and examine the implications of the 'no' vote.

A number of wind farm projects have been on hold in Scotland pending the outcome of the referendum - and billions of pounds more would have been thrown into doubt in the event of a "yes" vote.Photo: ALAMY

From North Sea oil giants to wind farm developers, companies across the energy sector have expressed their relief at the “no” vote.

Nuclear energy, oil, coal, gas and electricity are all currently matters reserved to the United Kingdom. Independence would have heralded a major period of uncertainty as policies underpinning entire industries faced being redrawn.

The "no" campaign warned that an independent Scotland would be saddled with costs and liabilities that are currently shared across the entire UK market, damaging Scottish industry and consumers alike.

Therefore, while proposals for further devolution are as yet unclear, Holyrood appears unlikely to be handed complete control of energy matters.

However, there are already calls from Scottish renewables groups for Holyrood to have a greater say in determining energy policy, while critics of renewables say Scotland should be forced to pick up more of the costs of its drive for wind farms.

In particular, it argued that only the whole of the UK could afford to stand behind commitments on tax relief for decommissioning the North Sea.

The Government will now want to prove its stewardship credentials and hope to secure investments in a number of North Sea projects that are currently on hold amid concerns about rising costs in the region.

Sir Ian Wood, who was commissioned by Government to examine the North Sea's remaining potential, was an important voice for the Better Together campaign in undermining Alex Salmond's claims about the scale of untapped reserves.

Sir Ian has also made very clear he believes substantial reforms and more tax breaks are needed to help the industry. Don't be surprised to see his suggestions acted upon in forthcoming in the Autumn Statement or next year's Budget.

The resolution of the uncertainty over the region could also smooth the way for M&A activity.

"A more certain political backdrop from the no vote may mean that the much needed capital injections to some of the smaller cap North Sea oil and gas explorers will move a step closer - via mergers and acquisitions or capital raising on public markets," Ian McLelland, oil and gas analyst at Edison Investment Research, says.

Reaction

Ben van Beurden, chief executive, Royal Dutch Shell:

“Shell welcomes the decision by the people of Scotland to remain within the UK, which reduces the operating uncertainty for businesses based in Scotland. Shell will continue to work closely with both the UK and Scottish governments to help the industry deliver vital energy supplies through investment in the UK’s oil and gas resources. We look forward to continuing our proud association with Scotland.”

BP:

“The North Sea is important to BP and we expect to be an active participant in the oil and gas industry in Scotland for years to come. BP will continue to work closely with both the UK and Scottish Governments to realise our shared ambition of maximising economic recovery from the North Sea.”

Malcolm Webb, chief executive, Oil & Gas UK:

"To safeguard the industry’s future, it is particularly important that that the government now presses swiftly ahead with fiscal reform as well as the implementation of Sir Ian Wood’s recommendations to maximise the economic recovery of our oil and gas resource."

POWER

What next: no drastic overhaul, but fresh scrutiny?

The UK power market looks set to continue as one entity for the time being, averting the chaos that would have ensued if the UK had insisted an independent Scotland take sole responsibility for its own electricity assets.

Shares in Scottish-based power firms such as SSE were boosted by the referendum result on Friday.

A number of projects have been on hold in Scotland pending the outcome of the referendum - and billions of pounds more would have been thrown into doubt in the event of a "yes" vote.

Infinis Energy has indicated it is likely to take investment decisions on two proposed wind farms within weeks now the uncertainty over the referendum is resolved.

All UK energy consumers currently share the burden of subsidising wind farms despite a disproportionate share of them being built in Scotland.

Ed Davey, the energy secretary, had said this would not continue in an independent Scotland and that forcing Scottish consumers pick up those subsidies alone would have added up to £189 to their annual energy bills.

With a no vote, this outcome appears unlikely.

The SNP had been calling for a continued single energy market even in the event of independence. And the UK Government has spent years putting its UK-wide subsidy framework for energy in place, so is not about to abandon it, for all the reasons set out in the 'no' campaign.

Yet critics of the wind industry say that is exactly what should happen.

John Constable, director of the Renewable Energy Foundation, a group critical of subsidy costs, said that English and Welsh consumers should no longer be expected to "be expected to go on propping up the freeloaders of the Scottish renewables industry".

But even if such calls go unheeded there could be less drastic changes.

"We would note that there is still a risk that certain areas of energy policy could be included in the further powers that are to be devolved from Westminster to the Scottish Parliament," analysts at Citigroup said.

Lobby group Scottish Renewables is calling for Holyrood to have a greater say in energy matters through "a new joint Scottish and UK Government energy policy".

Reaction

Infinis Energy:

"This outcome preserves the status quo of an integrated UK energy market and the UK-wide applicability of the RO-legislative framework in support of continued investment in renewable energy."

Niall Stuart, chief executive, Scottish Renewables:

“Now we know the final result of the referendum it is important that both governments return to working together to meet the incredibly important challenges facing our country, such as tackling climate change and growing the economy. Renewables can make a significant contribution to both.

“Scottish Renewables is calling for a new joint Scottish and UK Government energy policy that balances the interests of Scotland within a single GB energy market; a more open and accountable energy regulator; our islands connected up to the grid and coordinated investment by the UK and Scottish Governments to support our flourishing marine energy sector.”

John Constable, director of REF:

“English and Welsh consumers cannot now be expected to go on propping up the freeloaders of the Scottish renewables industry through income support and the socialisation of grid and system management costs, for example the now notorious constraint payments.

"We have alternative and competitive low carbon energy sources, including high load factor offshore wind, a major build of combined cycle gas generation, and, provided that it is not subsidised through Contracts for Difference, nuclear. The current situation is not sustainable and a new balance will have to be struck."

Tony Ward, Head of Power & Utilities at EY UK & Ireland:

“A ‘No’ vote is important for the whole of the UK in that it allows the established dynamic in the energy markets to continue its current course.

“The UK markets have developed ever-closer and more integrated systems and ways of operating that serve to reduce, then smooth, the cost burden across all users. This also enables investment choices to be made on system-wide merit and help achieve a degree of energy security that can often be taken for granted.

“A major uncertainty has been removed by the vote, particularly for those who were evaluating significant capital investments in Scotland."